Inflation and Dilapidations – when should a landlord's loss be measured?

Recent inflation has resulted in a significant increase in the price of goods and services in the construction industry. This has, in turn, resulted in an increase in the cost of carrying out dilapidations works.

Who should bear that cost increase if it occurs after lease expiry?

A tenant may argue that it is only liable for the cost of putting the premises into lease compliant condition as at the date the lease expired. It is on that date that the landlord's loss crystallises. That is the date used for diminution in value, for example. If there is any delay in the landlord carrying out the works, during which time the cost of those works has increased, it is the landlord who should bear the difference.

It's worth remembering that the purpose of damages is to put the innocent party – here the landlord - into the position it would have been had the breach of contract not occurred.

And so, the landlord's response is likely to be that the loss it will suffer is the actual cost of the works it will have to carry out to repair the premises. If it can't do those works until sometime after lease expiry, provided the delay is reasonable, the tenant is liable for those costs even if inflation has driven them up in the meantime.

Who is right will usually depend on whether the delay in starting the works is a reasonable one, but a landlord is not often expected to start works the moment a lease comes to an end.